CBSE Class 10 · Money and Credit

Self-Help Groups for the Poor Class 10 Economics

Updated 14 October 2026 · Fact-checked

Self-Help Groups organise rural poor people, especially women, into groups of 15-20 who save regularly and lend to members at lower interest than moneylenders. After a year or two of regular saving, the group can get a bank loan in its own name. Group responsibility for repayment overcomes the lack of collateral, and SHGs also empower women socially.

Understand Self-Help Groups for the Poor

Why SHGs are needed. Poor households still depend on informal credit because banks are not present everywhere in rural India and bank loans need proper documents and collateral; absence of collateral is a major barrier. Moneylenders lend without collateral because they know borrowers personally, but they charge very high interest, keep no records and harass poor borrowers. So newer ways of lending to the poor have been tried.

How an SHG works.

Rural poor, in particular women, are organised into small Self Help Groups (SHGs) that pool their savings.
A typical SHG has 15-20 members, usually from one neighbourhood, who meet and save regularly.
Saving per member varies from Rs 25 to Rs 100 or more, depending on ability.
Members can take small loans from the group itself; the group charges interest, but less than the moneylender.
After a year or two of regular saving, the group becomes eligible for a bank loan.
The bank loan is sanctioned in the name of the group and is meant to create self-employment for members: e.g., releasing mortgaged land, working capital (seeds, fertilisers, raw materials such as bamboo and cloth), housing materials, and assets like sewing machines, handlooms and cattle.

Group decisions and responsibility.

Members take most important decisions: purpose, amount, interest, repayment schedule.
The group is responsible for repayment; any member's non-repayment is followed up seriously by the others.
Because of this, banks lend to poor women organised in SHGs even without collateral.

Benefits of SHGs.
1. They help borrowers overcome the lack of collateral.
2. Members get timely loans for many purposes at a reasonable interest rate.
3. SHGs are the building blocks of organisation of the rural poor.
4. They help women become financially self-reliant.
5. Regular meetings give a platform to discuss and act on social issues such as health, nutrition and domestic violence.

Grameen Bank of Bangladesh. One of the biggest success stories in meeting the poor's credit needs at reasonable rates. Started in the 1970s as a small project, by 2018 it had over 9 million members in about 81,600 villages across Bangladesh. Almost all borrowers are women from the poorest sections; they have proved that poor women are reliable borrowers who can start and run many small income-generating activities. Its founder, Professor Muhammad Yunus, received the 2006 Nobel Prize for Peace; he said that if credit reaches the poor on appropriate and reasonable terms, millions of small people with small pursuits can add up to the biggest development wonder.

Link to the chapter's conclusion. Formal credit must increase and the poor must get a much greater share of it; SHGs are one way to bring formal bank credit to the poor.

Self-Help Groups for the Poor: key facts

SHG basics: 15-20 members, usually women of one neighbourhood; save Rs 25-100 or more each; meet and save regularly
Lending ladder: Internal small loans (interest below moneylender's) -> after 1-2 years of regular saving -> bank loan in the group's name
Loan uses: Release mortgaged land; working capital (seeds, fertilisers, bamboo, cloth); housing materials; assets (sewing machine, handloom, cattle); Self-employment.
Why banks lend without collateral: Group decides loans and is responsible for repayment; members follow up defaults; Group pressure replaces collateral.
Benefits: Overcome collateral problem; timely, reasonable loans; organise rural poor; women's financial self-reliance; platform for social issues
Grameen Bank: Country Bangladesh
Started 1970s
2018 over 9 million members in about 81,600 villages
Members almost all women
Founder Muhammad Yunus, Nobel Peace Prize 2006

Country	Bangladesh
Started	1970s
2018	over 9 million members in about 81,600 villages
Members	almost all women
Founder	Muhammad Yunus, Nobel Peace Prize 2006

How to answer Self-Help Groups for the Poor questions

Economics in 2026-27 has 1-, 3- and 5-mark questions. SHG questions ask for the basic idea, how SHGs work, why banks lend to them, and their economic and social benefits, sometimes with the Grameen Bank.

1Start with why the poor need SHGs: no collateral, costly moneylenders.
2Describe the working: size, savings, internal loans, bank loan after one or two years.
3Explain how group responsibility replaces collateral.
4List economic benefits (timely, cheaper loans, self-employment) and social benefits (women's self-reliance, social issues).
5Add the Grameen Bank as an example when the question allows.

Self-Help Groups for the Poor in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Group responsibility replaces collateral

Suppose 18 women from one neighbourhood each save Rs 50 a month for two years, lend small amounts to each other, and keep careful records. One member delays repayment, and the others visit her and help her plan how to repay.

Explain why a bank would now be willing to lend to this group without collateral.

Try it first, then show the solutionSolution

Regular saving for over a year shows discipline: the group becomes eligible.
The loan is in the group's name; the group is responsible for repayment.
Members follow up any non-repayment seriously.
So group responsibility acts in place of collateral.

Answer: The women have saved regularly for two years, making the group eligible for a bank loan. The loan would be sanctioned in the group's name, and the group as a whole is responsible for repaying it. Because members seriously follow up any default, as they did here, the bank's risk falls, so it can lend to the poor women without collateral.

Memory hook: Trust of the group is the poor woman's collateral.

Tricks to remember Self-Help Groups for the Poor

Short memory aids. Say each one aloud once, then use it on a question the same day.

15-20, 25-100, 1-2
15-20 members, Rs 25-100 savings, 1-2 years to bank eligibility.
Use it when: SHG facts.
Save, Lend, Link
Members save, lend internally, then link with a bank.
Use it when: How SHGs work.
9 million, 81,600
Grameen Bank in 2018: over 9 million members, about 81,600 villages.
Use it when: MCQs.

Self-Help Groups for the Poor: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Size of an SHG · 1 mark · MCQBoard level

A typical Self Help Group has:
(a) 5-10 members
(b) 15-20 members
(c) 50-100 members
(d) 200 or more members

Try it first, then show the solutionSolution

NCERT: a typical SHG has 15-20 members, usually from one neighbourhood (1 mark).

Answer: (b) 15-20 members

Example 2: Basic idea of SHGs (3 marks) · 3 marks · Short answerBoard level

What is the basic idea behind Self Help Groups for the poor? (3 marks)

Try it first, then show the solutionSolution

Organise rural poor, especially women, into small groups of 15-20 that pool regular savings (1 mark).
Members take small loans from the group at lower interest than moneylenders (1 mark).
After a year or two, the group gets a bank loan in its name; group responsibility replaces collateral, giving the poor cheap formal credit (1 mark).

Answer: SHGs organise the rural poor, especially women, into groups of 15-20 who save regularly and pool their savings. Members borrow small amounts from the group at lower interest than moneylenders charge. After a year or two of regular saving, the group gets a bank loan in its own name, and because the group is responsible for repayment, banks lend without collateral.

Example 3: Assertion-reason: banks and SHGs · 1 mark · Assertion-reasonHarder board level

Assertion (A): Banks are willing to lend to poor women organised in SHGs even without collateral.
Reason (R): The group is responsible for repayment, and non-repayment by any member is followed up seriously by others.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.

Try it first, then show the solutionSolution

NCERT says it is 'because of this feature' that banks lend; R explains A (1 mark).

Answer: (a) Both A and R are true, and R is the correct explanation of A.

Example 4: Benefits of SHGs (5 marks) · 5 marks · Long answerHarder board level

Explain how Self Help Groups help the rural poor, particularly women, both economically and socially. (5 marks)

Try it first, then show the solutionSolution

They overcome the lack of collateral, a main reason the poor cannot get bank loans (1 mark).
Members get timely loans for many purposes at reasonable interest, lower than moneylenders' (1 mark).
Loans create self-employment: releasing mortgaged land, working capital, housing materials, sewing machines, handlooms, cattle (1 mark).
SHGs are building blocks of organisation of the rural poor and help women become financially self-reliant (1 mark).
Regular meetings provide a platform to discuss and act on health, nutrition and domestic violence (1 mark).

Answer: SHGs help the poor overcome the lack of collateral, which keeps them from bank loans. Members get timely loans for many needs at reasonable interest, below what moneylenders charge. Loans support self-employment: releasing mortgaged land, buying seeds, fertilisers or raw materials like bamboo and cloth, housing materials, and assets such as sewing machines, handlooms and cattle. SHGs are building blocks for organising the rural poor and help women become financially self-reliant, since members themselves decide loan purposes, amounts and repayment. Their regular meetings also give women a platform to discuss and act on social issues such as health, nutrition and domestic violence.

Example 5: Passage: Grameen Bank (3 marks) · 3 marks · Short answerHOTS / competency

Read and answer. NCERT describes the Grameen Bank of Bangladesh as one of the biggest success stories in reaching the poor. Started in the 1970s as a small project, it had over 9 million members in about 81,600 villages by 2018. Almost all its borrowers are women from the poorest sections. (a) Who founded the Grameen Bank? (b) What did its women borrowers prove? (c) How is the Grameen Bank's idea similar to SHGs in India? (3 marks)

Try it first, then show the solutionSolution

(a) Professor Muhammad Yunus, recipient of the 2006 Nobel Peace Prize (1 mark).
(b) Poor women are reliable borrowers who can start and run small income-generating activities successfully (1 mark).
(c) Both give credit to poor women on reasonable terms without relying on collateral, enabling self-employment (1 mark).

Answer: (a) Professor Muhammad Yunus, who received the 2006 Nobel Peace Prize. (b) That poor women are reliable borrowers and can successfully run small income-generating activities. (c) Like SHGs, it brings credit to poor women on reasonable terms without depending on collateral, so they can create self-employment and raise incomes.

Example 6: Why the poor need SHGs (3 marks) · 3 marks · Short answerHarder board level

Why do poor households still depend on informal credit, and how do SHGs address this? (3 marks)

Try it first, then show the solutionSolution

Banks are not present everywhere in rural India (1 mark).
Bank loans need documents and collateral, which the poor lack; moneylenders lend without collateral but charge high interest, keep no records and harass (1 mark).
SHGs pool savings, lend at lower interest, and link to banks with group responsibility replacing collateral (1 mark).

Answer: Banks are not present everywhere in rural India, and bank loans need documents and collateral that the poor lack, so they turn to moneylenders who charge very high interest, keep no records and harass borrowers. SHGs solve this by pooling members' savings, lending at lower interest and, after a year or two, getting bank loans where group responsibility replaces collateral.

Where students lose marks in Self-Help Groups for the Poor

The slips examiners see most often, and what to write instead.

Mistake: Saying SHGs need collateral
Bank loans are linked with collateral.
Wrong working
SHG members must give land as security.
Right working
Group responsibility replaces collateral.
Do this: Group = guarantee.
Usually costs: 1 mark.
Mistake: Missing the savings step
Jumping to bank loans.
Wrong working
SHGs get bank loans as soon as they form.
Right working
After one or two years of regular saving.
Do this: Save first, then link.
Usually costs: 1 mark.
Mistake: Only economic benefits
Social role forgotten.
Wrong working
SHGs only give loans.
Right working
Also women's self-reliance and a platform for social issues.
Do this: Add social benefits.
Usually costs: 1-2 marks.
Mistake: Wrong Grameen facts
Numbers mixed.
Wrong working
Grameen Bank has 81,600 members.
Right working
Over 9 million members in about 81,600 villages (2018).
Do this: Members vs villages.
Usually costs: 1 mark.

Exam tips

Describe SHGs in the order: form, save, lend internally, link to bank, group repayment.
Always pair economic and social benefits in 5-mark answers.
Use the Grameen Bank as evidence that poor women are reliable borrowers.
Economics in 2026-27 has 1-, 3- and 5-mark questions.

Practice questions on Self-Help Groups for the Poor

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
After how long does a regularly saving SHG usually become eligible for a bank loan?
(a) One month
(b) Six months
(c) One or two years
(d) Ten years
Hint
NCERT's timeline.
Answer
(c) One or two years
Q2 · 3 marks · Short answerHarder board level
Who decides the terms of loans in an SHG, and why does this matter? (3 marks)
Hint
Purpose, amount, interest, schedule.
Answer
The group members take most important decisions: the purpose, amount, interest to be charged and repayment schedule of each loan. This gives members control over their own credit, builds responsibility, and since the group is responsible for repayment, members follow up defaults, which makes banks willing to lend.
Q3 · 1 mark · Assertion-reasonHarder board level
Assertion (A): The interest charged on loans within an SHG is higher than the moneylender's.
Reason (R): SHG members pool their savings to lend to each other.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Hint
Compare with the moneylender.
Answer
(d) A is false, but R is true.
Q4 · 3 marks · Short answerHOTS / competency
Suppose a group of women weavers wants to buy handlooms but none owns land or other assets. Explain how forming an SHG could help them. (3 marks)
Hint
Savings, eligibility, group loan, asset purchase.
Answer
By forming an SHG of 15-20 members and saving regularly, they can first take small internal loans at lower interest. After a year or two of regular saving, the group becomes eligible for a bank loan in its name; group responsibility replaces collateral. The loan can be used to buy handlooms, creating self-employment and income.
Q5 · 3 marks · Short answerHOTS / competency
How do SHGs act as 'building blocks of organisation of the rural poor'? (3 marks)
Hint
Regular meetings, decisions, social issues.
Answer
SHGs bring poor neighbours, especially women, together regularly to save, lend and make decisions about loans. This builds trust, leadership and collective responsibility. Their meetings also become a platform to discuss and act on social issues like health, nutrition and domestic violence, so SHGs organise the poor beyond just credit.
Q6 · 5 marks · Long answerHOTS / competency
'If credit can be made available to the poor on appropriate and reasonable terms, millions of small people with millions of small pursuits can add up to create the biggest development wonder.' Evaluate this idea of Muhammad Yunus using SHGs and the Grameen Bank. (5 marks)
Hint
Barriers, solution, evidence, limits.
Answer
The poor are usually shut out of cheap credit because banks need documents and collateral and are not present everywhere, so they borrow from moneylenders at very high interest and risk debt traps. SHGs and the Grameen Bank change the terms: members save regularly, lend to each other at lower interest, and then receive bank loans with group responsibility replacing collateral. The Grameen Bank, started in the 1970s, had over 9 million members in about 81,600 villages by 2018, almost all poor women, who proved reliable borrowers running small businesses. Loans for handlooms, cattle or raw materials create self-employment, so many small pursuits can add up to development, supporting Yunus's idea.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Who are SHGs mainly meant for?Show answer
The rural poor, in particular women.
2.How much does each member typically save?Show answer
Rs 25 to Rs 100 or more.
3.In whose name is the bank loan sanctioned?Show answer
In the name of the group.
4.Who founded the Grameen Bank?Show answer
Professor Muhammad Yunus.
5.Name two social issues SHGs discuss.Show answer
Any two of health, nutrition, domestic violence.

Self-Help Groups for the Poor: frequently asked questions

What is a Self Help Group?

A group of 15-20 rural poor people, usually women of one neighbourhood, who save regularly, lend to each other and later get bank loans as a group.

How do SHGs help the poor get loans without collateral?

The group is responsible for repayment and members follow up defaults, so banks lend to the group without collateral.

What are the benefits of SHGs for women?

Timely, reasonable loans, self-employment, financial self-reliance, and a platform to act on health, nutrition and domestic violence.

What is the Grameen Bank?

A bank in Bangladesh, founded by Muhammad Yunus, that lends to the poorest, almost all women; it had over 9 million members by 2018.